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How to Reduce Your Student Loan Burden

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Conventional wisdom has always held that student loan debt is "good debt". Meaning it is debt taken out for a long-term investment – like a mortgage on your home, which will pay dividends in the future.

What kind of dividends? Well, we know, for example, that college graduates make an average of one million dollars more over their life-time than non-college grads. So a loan of  $10,000 or $15,000 will pay off to the tune of nearly $1 million over your lifetime. That definitely sounds like "good debt", right?

In fact, Susan Dynarski, a professor of education and public policy at the University of Michigan, agrees:

When you think about what’s good debt and what’s bad debt, student loans fall into the realm of good debt, like mortgages… It’s an investment that pays off over the whole life cycle.

But with student loan debt set to exceed $1 trillion this year (according to the Huffington Post), the wisdom of getting a college degree at any cost is starting to come under question.

Exacerbating the problem is that non-student loan assistance for low-income students has been cut in the past year. While President Obama is committed to keeping the maximum Pell Grant award at $5,500, for example, the number of eligible students will likely be cut by at least one million.

Pell Grant cuts, plus rising tuition at both public and private universities, have caused students loans to be come an increasingly popular option for paying for college.

So, is there a way to take out student loans, without becoming another grim statistic of the college grad that can’t afford his loan repayments?

While there are no guarantees when it comes to debt – even "good debt" like student loans – it is possible to make loans for college a little less risky of a proposition. Here are some suggestions:

  • Only take out Stafford loans or other guaranteed government loans – private loans have higher interest rates and less flexible terms.
  • Consider less expensive universities. You may even want to start out by living at home and attending your city’s two-year college, where your savings will be even greater. Then transfer to an in-state public school for your junior and senior year.
  • Aggressively apply for scholarships. The more you apply for, the better your chances of getting one. Unlike student loans, scholarships really are "free" money.
  • Work full-time during the summers and part-time during the school year to maximize your income. Some companies offer full tuition-reimbursement for their employees, so explore that option as well.
  • Live like a "starving college student" while you actually are in college. The more frugal you can be during your undergraduate degree, the less likely you will be to have to live like that once you graduate.
  • Use your student loans to pay for your classes only. Pay for your room and board with off-campus or work-study jobs. No matter what you do, don’t use your student loan to pay for pizza and beer, or an off-campus apartment. You can live without these things!
  • Make a budget for how you will allocate your student loans. Just because the money is there for easy borrowing – especially with private student loans – doesn’t mean it’s "free" money. Your loans are very real and come graduation, you will be repaying them plus some rather hefty interest payments.
  • Consider your future career path carefully. If your lifelong dream is to be a stage actor or a social worker with at-risk youth, follow your dreams – by all means! But definitely think twice before taking out $50K or even $100K in loans if your annual earning potential will only be around $30K.  You won’t even be able to afford to eat with a debt burden like that.

Are you in the "good debt" or "bad debt" camp for student loans? How do you think students can make college debt less risky?

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